As proprietary reverse mortgage products have emerged as an increasingly dominant player in the broader reverse mortgage industry, determining what common attributes are shared by a group of borrowers who decide to go the proprietary route becomes essential so that lenders can best tailor their proprietary offerings to meet the needs of their clients.
The proprietary reverse mortgage landscape has also changed substantively over the last 60 days due to the continued health and economic crisis caused by the COVID-19 coronavirus pandemic, which has also had an effect on the ways in which companies execute their plans. Borrowers, fueled by the financial urgency of the pandemic, are inquiring more about private reverse mortgage options according to two major lenders operating in the space.
Those lenders have also provided more information on their typical non-Home Equity Conversion Mortgage (HECM) borrower profiles, and how the pandemic may be impacting their efforts in facilitating the needs of borrowers through their HECM alternatives.
Common borrower profiles: Longbridge’s Platinum
While there are some shared attributes between lenders in terms of a common borrower profile, the companies’ different priorities also come to light when they describe who is primarily served by a proprietary reverse mortgage. For Longbridge Financial and its “Platinum” suite of proprietary reverse mortgages, the company has identified some commonality with mortgage borrower counterparts on the forward side of the business.
“Platinum borrowers are almost never needs-based and more closely resemble a forward mortgage borrower,” according to Chris Mayer, CEO of Longbridge Financial. “They are savvy and have done their homework on how to use home equity to maximize their assets to avoid tapping certain investments. Many have financial advisors and are looking at all of their home equity options, such as HELOCs and cash out refis.”
That’s not to say that all of Platinum’s borrowers can be painted with a broad brush, however.
“For those with a large immediate need, such as eliminating a high mortgage balance or covering a large fixed expense (one borrower used proceeds to purchase a plane), Platinum Fixed products have been a clear choice,” Mayer says. “What is especially exciting, however, is seeing Platinum Line of Credit emerge as a strong choice for borrowers looking for a home equity solution for longer-term planning.”
Longbridge is observing Platinum LOC borrowers taking advantage of that product to refinance an existing mortgage, or to take a small portion of proceeds to cover an immediate need while leaving additional proceeds alone for future use.
Common profile for FAR’s HomeSafe suite
For Finance of America Reverse (FAR), the company has conducted extensive market research in order to best understand the type of borrower that most often avails themselves of one of the many products in the HomeSafe suite.
“The summary of that research was that while there was certainly more than one prototypical HomeSafe client, they do share a few universal building blocks,” according to Ashley Smith, head of marketing and communications at FAR. “First, HomeSafe customers tend to be biased toward a view of their retirement that considers housing wealth and real estate a central piece of their plan. This viewpoint, coupled with an entrepreneurial mindset (optimism plus cash-flow consciousness) makes them open to unconventional financing opportunities.”
A second building block, Smith shares, is that HomeSafe borrowers are very attached to their homes, with Smith citing one instance where a couple could’ve chosen to move away from California to Arizona to stretch their resources further than what is possible in a relatively high cost-of-living state like California.
“In the end, they weren’t prepared to make this drastic lifestyle change and decided to stay in California,” Smith says.
A third building block for FAR is a client’s desire for a home that is large enough to host a family gathering, with one illustrative instance being a client whose Lake Michigan home had been serving as the centerpiece of family gatherings for years, with that client not wanting to give up the importance of the home to the family’s cohesiveness.
“Finally, the most important HomeSafe building block of all is ‘retirement on their own terms,’” Smith says. “Regardless of desired lifestyle, borrowers love the freedom and flexibility that HomeSafe provides.”
Typical reasons to opt for a proprietary product
When it comes to the more typical reasons that a borrower may choose to opt for a proprietary product, both FAR and Longbridge identify two different primary drivers behind the choice of their consumers. For Longbridge, much of the reason is centered on obtaining an ability to find a higher loan amount, or to borrow against a property type that a HECM simply doesn’t permit.
“In general, these borrowers are looking for a higher loan amount, want to borrow against a non-FHA approved condo, or are looking for a reverse mortgage with low initial cost,” Mayer says. “Platinum compares favorably to the HECM on all of these fronts.”
For FAR, the biggest attributed reason the company gives for a borrower to seek a HomeSafe loan is to eliminate their traditional mortgage payment obligation. Still, the HomeSafe borrower pool also has different needs for different times, Smith explains.
“Borrowers with shorter-term goals are looking to pay down bills and outstanding debts or utilize their home equity while preserving other investments and retirement assets,” Smith tells RMD. “On the other hand, borrowers with longer-term goals are focused on maintaining their lifestyle or enhancing their lifestyle in retirement. These goals are typically mutually-exclusive among borrowers and present an opportunity to speak directly to that individual’s unique need.”
How COVID-19 has impacted proprietary operations
One of the most demonstrable ways in which the COVID-19 coronavirus pandemic has impacted the proprietary reverse mortgage market is by some major lenders putting their proprietary reverse mortgage programs on hold due to pricing instability. Both Liberty Reverse Mortgage and Reverse Mortgage Funding (RMF) suspended their proprietary offerings – EquityIQ and Equity Elite, respectively – due to concerns related to pricing volatility.
For those who have remained in the proprietary space, however, the coronavirus pandemic has meant different things to different companies. In the case of Longbridge, it has meant that the product category is potentially more important than it has ever been.
“The pandemic has demonstrated in a tangible way the value of having access to liquidity from [borrowers’] homes and the risks associated with other products such as HELOCs or some jumbo mortgages,” Mayer tells RMD. “Retirees with a Platinum reverse mortgage have a relatively reliable source of funds that is not directly affected by the stock market in times of uncertainty and volatility. Savvy borrowers with a Platinum LOC are less likely to be forced to liquidate investments during stress. As well, we have seen additional demand from borrowers worried about alternatives, with banks such as Chase and Wells Fargo suspending new HELOC applications.”
In the case of FAR and HomeSafe, the current crisis has not changed or expanded how the company characterizes HomeSafe borrowers, but it has added a sense of urgency for many people and caused more potential borrowers to embrace more creative financing solutions, Smith says.
“FAR has been hard at work this year to give originators as much support as possible,” Smith tells RMD. “Between launching Xcelerate, managing through the market volatility, and handling record-breaking submission levels, it’s been a busy time. But we’re definitely not done yet.”
The company is actively retooling its training programs at the moment so that originators can be better prepared to identify and speak to borrowers who may be best suited by a HomeSafe product, Smith says,
“[RMD] readers can expect to see a deep dive on the HomeSafe borrower profile created from our proprietary research within the curriculum later this year,” she adds.